Russian Federation and the IMF
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The International Monetary Fund (IMF) has approved financial support totaling SDR 8.5 billion (about US$11.2 billion) for the Russian Federation. The financing consists of an augmentation of Russia’s extended arrangement by the equivalent of SDR 6.3 billion (about US$8.3 billion) to support the government’s economic program for 1998, and SDR 2.16 billion (about US$2.9 billion) under the Compensatory and Contingency Financing Facility (CCFF) to compensate for a shortfall in export earnings.
Of the augmented amount to be provided under the extended arrangement, the equivalent of SDR 4.0 billion (about US$5.3 billion) is to be made available under the SRF (see Press Release No. 97/59).
The equivalent of SDR 3.6 billion (about US$4.8 billion) is available immediately, comprising drawings of SDR 768.4 million (about US$1.0 billion) under the Extended Fund Facility (EFF), SDR 675.0 million (about US$0.9 billion) under the Supplemental Reserve Facility (SRF), and SDR 2.16 billion under the CCFF. The schedule of drawings under the augmented arrangement and the CCFF is summarized in Table 1. Relative to the envisaged schedule of disbursements announced on July 13, the first disbursement has been reduced by SDR 600 million (about US$800 million), in light of delays in implementing certain prior actions. This amount, SDR 600 million, is expected to be made available as an addition to the disbursement previously scheduled for September, provided that the measures are satisfactorily implemented in the meantime.
Russia's extended arrangement, for the equivalent of SDR 6.9 billion (about US$9.2 billion) was approved in March 1996 (see Press Release no. 96/13).
The IMF is financing the SDR 6.3 billion augmentation of the extended arrangement by borrowing under the General Arrangements to Borrow (GAB) by borrowing the equivalent of SDR 6.3 billion (about US$8.3 billion). Calls on the participants will be made in proportion to the amounts in Table 3, and in line with drawings by Russia under the EFF.
Russia's financial markets, which have faced considerable volatility since October 1997, have been under intensified pressure since May. Capital outflows have led to steep increases in interest rates, undermining fiscal consolidation and the nascent economic recovery. Real GDP has fallen slightly in the first five months of 1998, compared with the same period in 1997, and while inflation has declined faster than projected, the balance of payments was in deficit during the first half of the year because of lower oil and gas prices, and the reversal in market confidence.
The government has responded by strengthening its efforts to correct the fiscal imbalance and by accelerating structural reforms. On June 25 it presented to the Chambers of the Federal Assembly (the Duma and Federation Council) a comprehensive package of stabilization measures, and has geared monetary policy toward defending the exchange rate, allowing domestic interest rates to rise substantially.
Fiscal and Monetary Policies
The enhanced economic package that is supported by the additional financial assistance from the IMF builds on the government's anticrisis program, and contains a number of supplementary measures. With the objectives of accelerating a return to financial stability and intensifying structural reforms, the program comprises: (1) a major fiscal adjustment in 1999, with supporting fiscal measures being put in place at an early stage; (2) a strengthened structural agenda for the remainder of 1998, emphasizing actions to address the nonpayment problem and to promote private sector development; and (3) steps to ensure the viability of the government debt position.
The fiscal adjustment calls for reducing the federal budget deficit from 5.6 percent of GDP in 1998 to 2.8 percent of GDP in 1999. This will be accomplished by significantly strengthening revenue performance from 10.7 percent of GDP in 1998 to 13 percent in 1999. A key element of improving tax collection will be the full establishment of large taxpayers’ units, with increased monitoring and control of taxpayers’ payment of their current tax liabilities.
As part of the strategy to lengthen the maturity of its domestic debt, the Ministry of Finance has offered holders of Treasury Bills (GKOs) the opportunity to exchange them for foreign currency Eurobonds with long maturities at market rates. The results of this offer are being made public today.
Monetary and exchange rate policy should remain broadly unchanged during the remainder of 1998, with a view to preserving the singular achievement of the sharp fall in inflation in recent years, and taking the inflation rate gradually lower.
The structural measures in the package, which are part of broader structural reforms supported by the World Bank, call for expanding and strengthening existing policies and for taking new actions to address the nonpayment problem and promote private sector development.
The authorities are committed to adopting a comprehensive approach to address underlying problems in the banking sector. This will be aimed not only at resolving problems of weak and insolvent banks, but also at improving the accounting, legal, and regulatory framework, strengthening supervision and compliance, and formulating a longer-term strategy for developing competition in the banking system.
Drawing under the CCFF
Russia's drawing under the CCFF is being made in respect of an export shortfall, related mainly to lower prices of crude oil during 1998. A calculated shortfall of about SDR 2.9 billion (about US$3.8 billion) in merchandise exports is attributable to the sharp decline in oil prices in the first half of 1998 and the expectation that the downward trend will continue through much of the rest of the year.
Russia joined the IMF on June 1, 1992, and its quota 1 is SDR 4.3 billion (about US$5.7 billion). Its outstanding use of IMF financing currently totals SDR 10.7 billion (about US$14.3 billion).
IMF EXTERNAL RELATIONS DEPARTMENT